Introduction

Our world is dealing with the pandemic which is unprecedented. And the damage it is bringing to the economy and company is immeasurable. But still we as an auditor are required to do the impossible for the stakeholders (i.e.., Report on any possible impact which could impact the business adversely). So with this article I am trying to cover the possible audit reporting by auditor under the covid-19 environment. And my article is majorly divided into two parts, which is as follows:-

1. Possible Reporting as per Standards on Auditing
2. Possible Reporting as per the requirement of CARO,2016

Possible Reporting as per Standards on Auditing

• Reporting as per SA-705 (Modification of Auditor’s Opinion)

The Auditor has the responsibility to modify his opinion on the financial statement where he concludes that necessary adjustments or disclosures of impact of covid-19 on the business is not been made by the management or when auditor is unable to obtain sufficient & appropriate audit evidence to conclude whether financial statements are free from material misstatements or not.

• Reporting on Going Concern Assumption as per SA 570 (Revised)

In India, lockdown of cities due to covid has been implemented in phased manner from 24^th March 2020. So there are high chances that the financial are not majorly impacted on the face of it for the FY 2019-20. But auditor has to judge it’s possible impact on the operations of business for the current FY and the financial years to be followed.

Hence, if any events or conditions casts significant doubt on entity’s ability to continue as going concern, then auditor must identify such events or conditions and shall seek appropriate audit evidences to assess whether use of going concern assumption by the management is appropriate or not and report accordingly.

• Use of Emphasis of Matter (EOM) Paragraph in Auditor’s Report as per- SA 706 (Revised)

Where the disclosures regarding Covid–19 made by the management are adequate & appropriate in auditor’s opinion, then an Emphasis of matter (EOM) paragraph may be included in auditor’s Report if he thinks that the same must to be brought under the knowledge of users of financial statements for sane decision making. But it shall not not be used as a substitute for Reporting Key Audit Matters (KAM).

• Communication of Key Audit Matters (KAM) as per SA-701

KAM involves those matters which in the professional judgement of auditor were of most significance and were also reported to the those charged with governance. Hence, the impact of Covid–19 on specific areas of financial statements which are significant in the eyes of auditor and were also discussed with the those charged with governance must be reported as KAM.

• Auditor’s Responsibility regarding Other Information SA 720 (Revised)

Auditor must take care that other information included in entity’s annual report is not material inconsistent with the financial statement. And while doing so auditor should pay particular attention to the context of  impact of Covid–19.

Possible Reporting as per the requirement of CARO,2016

• Physical Verification of Inventory

In this regard, where auditor is unable to attend the stock count due to the ongoing circumstances , the auditor shall perform alternate procedure as per SA-501 and if still auditor is unable to obtain sufficient & appropriate audit evidence then the auditor’s opinion shall be suitably modified.

• Reporting on deposit of undisputed statutory dues

In this regard, where the company has made payment within the extended due dates, it shall not constitute a non–compliance. But if company has made payment on a later date with penalty , it shall be reported as default.

• Default in repayment of loans or borrowings to a financial institution, bank, government or dues to debenture holders

RBI has issued a circular dated 27 march, 2020 on Covid–19 regulatory package where company can opt for a moratorium period for repayment of term loans or working Capital financial ,etc. though interest will be charged for this period. In this regard, where Company has exercised this option, the auditor shall make a factual statement in his report. And if company has made the payment within the extended due date, it shall not constitute a non-compliance.

You may read about Stimulas Packages of Covid-19 below:-

Atmanirbhar Bharat Part-1

Atmanirbhar Bharat Part-2

Atmanirbhar Bharat Part-3

Atmanirbhar Bharat Part-4

Atmanirbhar Bharat Part-5

Source Info: https://www.icai.org/